Stephanie Lenz was in her kitchen in rural Pennsylvania, filming her two young children having fun after dinner. As Prince&rsquo;s song &ldquo;Let&rsquo;s Go Crazy&rdquo; played, her toddler &mdash; clad in red pajamas &mdash; bounced up and down to the rhythm.

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On Monday, the U.S. 9th Circuit Court of Appeals ruled that Lenz may hold Universal Music Corp. liable for ordering YouTube to take down the video if she can show the company failed to first consider whether the footage amounted to “fair use.” An exception in the copyright law, the fair-use principle allows people to use others’ creative works in criticism, teaching and other limited circumstances.

It’s not perfect (see this analysis from Copyright Librarian,) but it’s darn close and way better than the one I didn’t post that insisted that you should only consider fair use after failing to get permission.

By allowing limited use of copyrighted material for things like criticism, review, commentary, parody, or just personal non-commercial use, fair use has a widespread and often invisible impact on today’s social internet. Yet its very ubiquity means it’s often taken for granted by individuals — and the internet companies who benefit from it.

This is worrying because fair use is under threat, and one of the culprits is the DMCA takedown notice that provides copyright owners an easy tool to remove content they claim to be unlawfully posted. Copyright owners send these notices to web companies who host content; the companies must then remove the content or risk legal liability themselves. Meant to promote the quick removal of impermissible copyright infringement, the DMCA system works well in many cases.

Unfortunately, an increasing number of copyright holders misuse this system to target even lawful fair use of their work. And the current DMCA system enables these aggressive copyright owners by providing virtually no penalties for failing to consider common exceptions to infringement — like fair use.

Many times per week, WordPress.com receives such DMCA takedown notices that target what we can plainly see is fair use. An all too common example is a notice directed at a blogger who is criticizing a company or its products, and therefore using screenshots of the company’s website or a photo of the company’s wares in their post. This isn’t just an outlier case; given our unique vantage point, we see an alarming number of businesses attempt to use the DMCA takedown process to wipe criticism of their company off the internet.

Copyright law allows for the fair use of works for purposes such as criticism, comment, teaching, and scholarship. Professor Lessig’s use of the “Lisztomania” clips in his lecture was a classic example of fair use and was not copyright infringement.

Earlier this year, Liberation Music, which claims to own the license to the Phoenix song, began the process to block the video through YouTube’s copyright infringement system. After the company submitted a DMCA takedown notice, Lessig filed a counter-notice that asserted the clips were fair use. After Liberation Music threatened to sue Lessig, he retracted the notice. But Lessig did not concede this issue. Instead, he enlisted EFF’s help to take Liberation Music to court.

“At issue in this case is whether a single line from a full-length novel singly paraphrased and attributed to the original author in a full-length Hollywood film can be considered a copyright infringement. In this case, it cannot,” the judge wrote.

Lee Caplin, who oversees the literary estate, said Friday in a telephone interview that the ruling “is problematic for authors throughout the United States” and he’s considering what legal options are available.

“We’re very disappointed in the judge’s ruling and we feel it’s not only wrong, it’s going to be damaging to creative people everywhere,” Caplin said.

Sony Pictures said in a statement Friday that the company was “confident that the judge in this case would get it right, and he did.”

“This decision absolutely clarifies that the law does not require that a new work of art comment on any of its source material to qualify as fair use,” attorney Virginia Rutledge told A.i.A. by phone this morning after a preliminary survey of the decision.

“This is a major win for Prince on at least two counts,” NYU art law professor Amy Adler told A.i.A. via e-mail. (She consulted on the case but was speaking for herself.) “The court decided that artwork does not need to comment on previous work to qualify as fair use, and that Prince’s testimony is not the dispositive question in determining whether a work is transformative. Rather the issue is how the work may reasonably be perceived. This is the right standard because it takes into account the underlying public purpose of copyright law, which should not be beholden to statements of individual intent but instead consider the value that all of us gain from the creation of new work.”

When it comes to YouTube forget about the concept of fair use in certain circumstances:

When content is removed from the Internet following a DMCA complaint filed by a rightsholder the user who uploaded the content gets a chance to file a counter-claim. If successful this should reinstate the content but on YouTube things now appear to be working somewhat differently. It transpires that YouTube has a special deal with Universal which sees content taken down at the record label’s request and DMCA counter notices blocked with no chance of appeal.

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“YouTube enters into agreements with certain music copyright owners to allow use of their sound recordings and musical compositions. In exchange for this, some of these music copyright owners require us to handle videos containing their sound recordings and/or musical works in ways that differ from the usual processes on YouTube. In some instances, this may mean the Content ID appeals and/or counter notification processes will not be available.”

I had a video on YouTube which contained a scene from Star Wars about how crappy the librarian was. It was taken down under the DMCA by Fox despite what I thought was clearly fair use. I could have follow-up but really, I don’t have the time nor the funds so I just took it down. On a certain level I understand that YouTube’s position in this scenario sucks, but there are larger issues that need to be addressed.